Upbeat results announcements from the top 100 law firms hide the reality of long-term deterioration, according to a searing new assessment of the upper reaches of the profession.

The report from advisory firm Taha & Watmough concludes with the ‘uncomfortable truth’ that up to 60% of the top 100 firms have not achieved real-terms growth in the last 10 years. The report suggests that reports of growing revenue have masked falls in the profitability of work and equity partner profits.

Jonathan Watmough

Watmough: 'Force field of inertia'

Report co-author Jonathan Watmough, a former managing partner with City firm RPC, said bigger did not necessarily mean better when the details of accounts were interrogated. Over the decade, revenue had increased in 96% of firms and profits in 87%. However, 60% of firms had seen their revenue per lawyer fall in real terms, trading down in the overall value and relative quality of their work. Effectively, the cost and complexity of doing business are growing faster than the value of the work.

In addition, profit per equity partner has decreased in real terms in 37% of firms, having a material impact on their ability to attract, motivate and retain their most important people.

Watmough said: ‘The takeaway is that both the value and profitability of the work have either stagnated or declined in the majority of firms over the last 10 years, and the corrosive financial impact of this has only been ameliorated to some degree through hard equity management.’

The report says the key to success over the decade has been the ability of equity partnerships to adapt better to a fast-changing environment. However, Watmough said a majority of firms were ‘managed on a form of institutional autopilot’.

‘It is this basic equity partner existential mode, surrounded by a force field of inertia protecting the status quo as if it’s a Ming vase, which unconsciously preserves law firm business-as-usual and so resists change,’ he said. A firm does not make a choice to stand still or go into retreat, he added; that is ‘the system default’.